DBRS Confirms Rating on B-Arena NV/SA - Compartment 3

DBRS Ratings Limited (DBRS) has today confirmed the Class A2 Floating Rate Notes (the Class A2 Notes) issued by B-Arena NV/SA - Compartment 3 (the Issuer) at AAA (sf).

The confirmation of the rating on the Class A2 Notes is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of July 2015.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A2 Notes to cover the expected losses at the AAA (sf) rating level.

B-Arena NV/SA - Compartment 3 is a securitisation of Belgian prime residential mortgages originated by Delta Lloyd Bank NV/SA and serviced by the same bank as well as its sub-agent Stater Belgium NV.

As of July 2015, two- to three-month arrears are at 0.41%, up slightly from 0.21% in July 2014. The 90+ delinquency ratio was at 0.51%. The current cumulative default ratio is low at 0.02%.

As of July 2015, credit enhancement to the Class A2 Notes was 32.09%, up from 26.81% in July 2014. Credit enhancement to the Class A2 Notes consists of subordination of the Class B Notes, a reserve fund and a liquidity facility.

The transaction benefits from a reserve fund that is available to cover senior fees as well as interest and principal shortfall (via the Principal Deficiency Ledger (PDL)) on the Class A2 Notes. The reserve fund is currently at the target level of EUR 10.00 million and is not permitted to amortise.

The transaction also benefits from an amortising liquidity reserve that is available to cover senior fees as well as interest and principal shortfall (via the PDL) on the Class A2 Notes. The liquidity reserve is currently at the target level of EUR 15,187,111.00.

BNP Paribas Fortis NV/SA is the account bank for the transaction. The DBRS public rating of BNP Paribas Fortis NV/SA complies with the Minimum Institution Rating given the rating assigned to the Class A2 Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The Royal Bank of Scotland plc (RBS) is the swap counterparty for the transaction. The DBRS public rating of RBS at A (low) is below the DBRS First Rating Threshold given the rating assigned to the Class A2 Notes as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. As the swap documentation does not include DBRS Rating Thresholds, cash flow analysis for the Class A2 Notes included scenarios where the transaction did not benefit from the swap. In these scenarios, the available credit enhancement to the Class A2 Notes was sufficient to cover DBRS expected losses at the AAA (sf) rating level.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include reports provided by Intertrust Administrative Services BV and data from the European DataWarehouse.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 24 November 2014, when DBRS discontinued the rating on the Class A1 Notes due to repayment in full.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):
-- DBRS expected a lifetime base case probability of default (PD) and loss given default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of mortgages for the Issuer are 1.64% and 10.40%, respectively. At the AAA (sf) rating level, the corresponding PD is 22.67% and the LGD is 36.95%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A2 Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A2 Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A2 Notes would be expected to remain at AAA (sf).

Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration in a central repository, see
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Konstantine Pastras
Initial Rating Date: 25 January 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Andrew Lynch
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions (September 2015)
-- Master European Structured Finance Surveillance Methodology (April 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (September 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)
-- Derivative Criteria for European Structured Finance Transactions (October 2014)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.